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The market price of an $980000, ten-year, 8% (pays interest semiannually) bond issue sold to yield...

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Accounting

The market price of an $980000, ten-year, 8% (pays interestsemiannually) bond issue sold to yield an effective rate of 6%is

$1874325.

$1134459.

$1124068.

$1125803.

Answer & Explanation Solved by verified expert
3.6 Ratings (669 Votes)

--Correct Answer = Option #4: $ 1,125,803

Amount PV factor Present Values
PV of Face Value of $                       980,000.00 0.55368 $                     542,606.40
PV of Interest payments of $                          39,200.00 14.87747 $                     583,196.82
Issue Price of Bonds $                 1,125,803 Answer

--Concept

Bonds issue price is calculated by ADDING the:
Discounted face value of bonds payable at 'applicable' market rate of interest [Face value x PV Factor], and
Discounted Interest payments amount (during the lifetime) at 'applicable' market rate of interest [Interest payment x PV Annuity factor]

--Data

Face Value $             980,000.00
Term (in years) 10
Total no. of interest payments 20
Annual Rate Applicable rate, because of Semi Annual payments
Market Rate 6.0% 3.0%
Coupon Rate 8.0% 4.0%

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Transcribed Image Text

The market price of an $980000, ten-year, 8% (pays interestsemiannually) bond issue sold to yield an effective rate of 6%is$1874325.$1134459.$1124068.$1125803.

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